The human T-cell leukemia virus, HTLV-I, has been established as the etiological agent for adult T-cell leukemia. The 3' long open reading frame of the human T-cell leukemia virus type-I (HTLV-I) encodes a 40 kD protein (Tax1). This protein positively regulates transcription directed by the HTLV-I long terminal repeat (LTR). We have been unable to attribute any sequence-specific DNA binding properties to Tax1, suggesting that the protein activates the HTLV-I promoter in an indirect fashion using cellular transcription factors. Our objective is to understand the biochemical mechanism of transactivation by the Tax1 protein and the involvement of cellular transcription factors in this process. We have identified two distinct Taxi-responsive elements (TRE-1 and TRE-2) in the viral LTR. A 36 kD protein identified in HeLa nuclear extract mediates the interaction of Tax1 with TRE-2. Purification of this protein was achieved by zinc chelate chromatography and preparative SDS-polyacrylamide gel electrophoresis. The renatured 36 kD protein bound specifically to a TRE-2 oligonucleotide, but not to nonfunctional base substitution mutant probes in a gel retardation assay. The 36 kD protein specifically activated transcription from the HTLV-I promoter in vitro. Extracellular HTLV Tax1 is taken up by lymphoid tissue culture cells. Approximately 80% of the protein is localized to the nucleus. Two biological properties of the uptake have been analyzed. First, in 7OZ/3 pre-B cells, the NFkB transcription factor is activated. Second, in peripheral blood lymphocytes, Tax1 acts to stimulate progression of PHA stimulated cells to the cell division cycle.